According to a new Bloomberg analysis, billionaires worth a combined $160 billion have left the United Kingdom or loosened their ties with the country over the past two years. Those departing represent more than half of the U.K.’s billionaire wealth. It’s a remarkable exodus for a country that has long been among the world’s most attractive destinations for the wealthy.
There’s a warning here for policymakers in New York and California who mistake their own jurisdictions’ economic advantages for protection against the consequences of their policy decisions. To some degree, the benefits of concentrating talented people and businesses in one place can sustain prosperity, despite high taxes and costly regulation. But these advantages are no guarantee of future prosperity. Policies that discourage marginal investment can weaken the networks on which that prosperity depends.
Finally, a reason to check your email.
Sign up for our free newsletter today.
As an example of what Richard Florida has characterized as “superstar cities,” London boasts financial markets and extensive professional networks offering benefits that few competing cities can replicate. Businesses can recruit from a deep pool of specialized workers, who, in turn, benefit from proximity to prospective employers and access to sophisticated pools of capital. Concentrating human and financial capital makes both more productive.
Economists refer to these gains as “agglomeration.” Research by Richard Baldwin and Paul Krugman explains how these advantages can give governments room to impose higher taxes without immediately driving businesses away. A firm may accept a larger tax bill because moving would mean sacrificing opportunities worth more than the savings.
The political temptation is to mistake that extra room for immunity. If successful businesses remain, policymakers can persuade themselves that the agglomeration benefits are decoupled from policy and politics. Higher taxes or additional regulations, on this view, won’t impair wealth creation that’s effectively operating on autopilot.
But Baldwin and Krugman’s argument comes with a warning. In their model, taxes that get too high can drive capital out and undermine the agglomeration that previously kept it in place. The damage may even be “irreversible.” Once businesses have established themselves around a different center, reversing the policy that drove them away may not bring them back.
The advantages of cities like London must therefore still be weighed against the costs of locating there. The cumulative effects of high taxes, burdensome regulations, and a generally hostile posture to capital can shift that calculation. The departures documented by Bloomberg suggest that the balance has changed for some of the people Britain once attracted.
Even highly specialized workers can be responsive to these economic changes. In a 2017 study, Enrico Moretti and Daniel J. Wilson examined the location decisions of star scientists using decades of patent data. They found that a tax cut, boosting after-tax income in one state by 1 percent relative to another, increased the net flow of these researchers toward that state by about 1.8 percent over the long run. Even people whose careers benefit from specialized professional networks respond to the financial advantages of relocation.
For businesses, the response need not involve leaving altogether. Often, it occurs through marginal decisions about where to hire the next employee or commit the next dollar of investment. A company can remain in London while directing more of its growth elsewhere. Its local footprint becomes smaller than it otherwise would have been.
New York and California already have reasons to take these responses seriously. New York’s state comptroller reported that the city’s share of national securities employment fell from roughly one-third in 1990 to 17.9 percent in 2024. Even as Wall Street remains formidable, an increasing share of the industry’s jobs is located elsewhere.
California offers more direct evidence of tax policy changing behavior. According to an analysis by economists Joshua Rauh and Ryan Shyu, the state’s 2012 tax increase on high earners prompted some affected taxpayers to leave and reduced the income reported by those who stayed. California’s economic strengths weren’t enough.
Policymakers overlook these effects when they point to successful businesses as proof that their jurisdictions can bear still higher costs. The relevant question is how those companies would have grown under different conditions. A firm may retain the operations that benefit most from its existing networks while expanding in a more hospitable business environment.
Such decisions rarely attract the attention generated by a billionaire’s departure. Their costs are often unseen in the form of less investment, fewer jobs, and forgone wealth creation. A city can remain prosperous while steadily falling short of its potential.
Over time, these decisions can also make the established center less attractive. Businesses expanding in new locations bring opportunities that draw workers and investment toward them. As competing networks develop, the reasons to keep paying a premium for the original location can become less compelling. Policy can help set that process in motion.
For governments that preside over such productive economies, a reasonable starting principle is to do no harm. Their task is to preserve the conditions that make people want to invest there. They cannot assume that networks built over generations will survive an indefinite accumulation of policy costs.
London’s high-profile departures should cause New York and California to consider the less visible decisions being made within their own economies. Agglomeration can provide insurance against harmful policy—but the coverage is not comprehensive.